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[2016] ZAGPJHC 71
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Nedbank Limited v Fredericks (1483/2011) [2016] ZAGPJHC 71 (7 April 2016)
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
CASE NO:
1483/2011
DATE: 7 APRIL 2016
In the matter between
Nedbank
Limited
..........................................................................................................................
Plaintiff
And
Binder: Joseph
Frederick
........................................................................................................
Defendant
JUDGMENT
Van der Linde, J:
Introduction
[1] This judgment follows on the trial
of an action in which the plaintiff, a bank, claims R356 687.41
from the
defendant, a businessman, who is the surety of the
plaintiff’s debtor. The debtor, a company, was liquidated on 6
April 2010,
and the defendant was one of its shareholders and
directors. The amount due and owing by the debtor to the plaintiff is
common
cause. It is R856 687.41, and it is also common cause
that this arises from an instalment sale agreement (“ISA”)
whereby the plaintiff sold the equipment to the debtor, the first
instalment of which was payable on 1 September 2008 and the final
instalment three years later on 1 August 2011. The debtor had
defaulted in respect of five instalments before being wound up at
the
instance of third party creditors.
[2] There was some argument by the
defendant that the plaintiff had initially sued for accelerated
payment of the full
outstanding balance
[1]
of the debt, and thereafter inconsistently and thus impermissibly
changed tack instead to claim liquidated damages represented
by the
difference between the balance outstanding after repossessing the
equipment, and its market value.
[2]
[3] However, there was no estoppel
raised against this conduct; and if the plaintiff were to be held to
claiming the
full outstanding balance of R856 687.41 without any
provision for a credit for the value of the equipment, the defendant
would
be worse off. If the lease ought to be viewed as never having
been cancelled, the lease period will in any event by now have run
its course, and the full outstanding balance will be claimable.
[4] Whether the plaintiff’s case,
which involved crediting the defendant with the value of the
equipment, must
be viewed as being for specific performance of the
rental payment obligation (with what would then be a gratuitous
credit of the
value of the equipment), or instead as being for
contractual liquidated damages following cancelation and
repossession, seems to
matter not. Either way, the parties are agreed
that the value of the equipment properly became an issue in the
trial. They were
agreed too that the date on which the plaintiff’s
damages, if any, are to be reckoned is 6 April, 2010, the date of
liquidation.
[5] Although the pleadings ranged
further, after the submissions at the end of the trial had been
concluded, there remained
really three central issues for
determination. The first was whether the plaintiff’s reliance
on a certificate of balance
was justified; the second, whether the
value of the equipment exceeded or fell short of the outstanding
balance; and the third,
if the value fell short of the outstanding
balance and the defendant thus became liable to pay that difference,
whether the plaintiff
breached an implied duty to mitigate its loss.
I deal with these in turn.
The certificate of
balance
[6] The trial started with the plaintiff
handing up, without objection, a certificate of balance, received as
exh D.
It asserts that the balance owing by the defendant to the
plaintiff is R356 687,41, plus interest at the applicable rate
calculated
from 6 April 2010, being the date of liquidation, to date
of payment. It also handed up as exh A a set of photographs of the
equipment,
as exh B a signed minute of a meeting between the two
sides’ experts, and as exh C a paginated bundle of documents,
which
was admitted for face value but not for truth of content. The
plaintiff then closed its case on those issues in respect of which
it
had the onus of proof.
[7] The clause in the suretyship
agreement relied upon by the plaintiff for the legitimacy of exh D,
is clause 6: “
The nature and amount of my obligation, as
well as the interest rate applicable in respect thereof, shall be
determined and proved
by a certificate purporting to have been signed
by a manager or accountant for the time being of any branch or the
head office
of Nedbank, whose capacity or authority it will not be
necessary to prove (or any other form of evidence contemplated in
section 169
(3) of the
National Credit Act, 2005
, if applicable).
This certificate or other form of evidence, as the case may be, will
upon the mere production thereof be binding
on me and be proof of the
contents of such certificate on the face of it and of the fact that
such amount is due and payable in
any legal proceedings against me,
and will be valid as a liquid document against me in any competent
court.”
[8] Interpretation starts with the
ordinary meaning of words.
[3]
The ordinary meaning of the words used in this clause has the effect
that the defendant cannot challenge a certificate of balance.
Clauses
of this ilk were specifically referred to and authoritatively
examined by the then Appellate Division in Ex parte Minister
of
Justice: In re Nedbank Ltd v Abstein Distributors (Pty) Ltd, and
Donelly v Barclays National Bank Ltd.
[4]
[9] That court held that a clause such
as the one under discussion was, on the authority of Sasfin v
Beukes,
[5]
invalid as offending public policy. The offensive aspect was that the
terms purported to oust the jurisdiction of the courts to
enquire
into and determine the accuracy and the validity of the issue covered
by the certificate. The court held that where the
certificate was
authored by an independent third party, that was different, and was
permissible. But where, as in that case, and
also in the present
case, the certificate was to be authored by the other contracting
party, the objection applied.
[10] The validity of the clause
concerned was not raised by the defendant in this case, but in my
view a court
cannot adopt a
non possumus
attitude when such a
clause features in a matter before it. This applies particularly
where the party favoured by the clause actually
relies on it for
relief claimed in the proceedings.
[11] On the basis then of Abstein,
clause 6 of the suretyship, as it stands, is invalid. The Abstein
court was
not asked to decide whether there was scope for the court
to sever the objectionable part of the clause from its
unobjectionable
part, thereby to preserve for the clause some degree
of enforceable legitimacy. In particular, the question arises whether
a court
would have the power to apply such a clause, despite its
express meaning, in a way that curtails its express effect, such as
meaning
that such a certificate would simply be
prima facie
evidence of its contents?
[12] Sasfin held that the court
did have the power, under the principle of severability, within an
instrument
as a whole to sever the objectionable clauses from those
that were unobjectionable, thereby preserving the enforceability of
the
balance of the instrument.
[6]
Whether this power should be exercised in a particular instance would
depend on the intention of the parties and, in particular,
whether it
could be said that that which would remain after severance would
still represent that which the parties had agreed upon.
[13] But the situation is
different here. To begin with, both sentences of the clause contain
words that indicate
the final and binding nature of the certificate:
in the first sentence, the words, “
shall be determined and
proved”
; and in the second sentence, the words, “
be
binding on me and be proof of the contents of such certificate on the
face of it and the fact that such amount is due and payable.”
This implies either that both sentences must be adjusted, or that
a rider would have to be added qualifying both, say by describing
the
effect of the certificate as being only
prima facie
.
[14] Doing either of the two is
not per se objectionable, since our courts have moved away from
antiquated notions
of permitting only severance but not addition;
substance vanquished form. A good example of the strides our courts
have made in
this respect, and the way in which these have been made,
is found in cases where unreasonable restraints of trade are
limited.
[7]
[15] But in those cases the
typical candidate for judicial surgery has been a clause, bona fide
and seriously
drafted to reflect a reasonable restraint, but which
was then upon judicial scrutiny held to have gone too far. It is thus
typically
a case of many shades of grey along a continuum between two
poles that are black and white.
[16] In the case with which we are
dealing here, there are only two choices: conclusive proof or
prima
facie
proof. That clear choice was available to the drafter of
the clause, who chose the former in preference to the latter; and in
circumstances
in which since Abstein, of more than a decade’s
vintage, the law on this aspect has been settled. The harshness which
the
softening of restraint of trade clauses was intended to assuage,
does not apply here.
[17] In my view if the court were
here to snip away at clause 6 so as to reduce its impact, or to apply
it less
strictly despite its express words, this would involve
impermissible contract-making for the parties.
[8]
[18] In the result, I am afraid
that in this case the judicial pen stops after the downward stroke
whereby the
clause was deleted. Nothing can come in its place.
Consequently I find that clause of the suretyship is invalid and
unenforceable.
[19] That is not the end of the
plaintiff’s case. The amount outstanding was common cause; the
fact that
the value of the equipment had to be credited to that
amount was common cause; and that the equipment did have some value
as at
date of liquidation, was common cause. The only final impact of
the finding concerning the certificate, is that the interest rate
has
not been proved.
The value of the
equipment
[20] The material available on
which to reach a decision on this issue are the agreements recorded
in the minute
of the experts’ meeting, and the viva voce
evidence of the defendant’s expert, Mr Kioilis. And in this
context, there
are really two issues. The first is whether the
experts’ agreement as to the value of the equipment has any
relevance to
the requirements of clause 19.3 the ISA, specifically
since the experts described their agreed value as a “
forced-sale
value”
and that clause requires the determination of a
“
market value”
; and the second is whether the
agreed “
forced-sale value”
requires further
reduction by the cost of dismantling, removal, and re-assembly.
[21] The experts’ minute,
exh B, was signed on 16 March 2016, and records their agreement
reached some three
weeks earlier on 23 February 2016. According to
the minute, they agreed that the value of the machine,
in situ
– meaning operational – in April 2010 was R1,2m.
[9]
They agreed too that in a dismantled state, the value was R1m.
[22] They described these two
values as the “
fair and reasonable”
values in
those respective states,
in situ
and dismantled.
[10]
They explained that in arriving at these two values,
in situ
and dismantled, they assumed the presence of a willing buyer; and
whether the buyer would be able to use the machine on the premises
or
would have to remove it, was also a relevant factor they took into
account.
[11]
[23] In paragraphs 8 and 9 of exh
B the experts provided agreed estimates of the removal costs
(R250 000),
and the re-assembly costs on another site
(R250 000). Of the removal costs in paragraph 8 they recorded:
“…
and the removal costs of the machine were not
included in the values as these were costs for the buyer and
estimated at about R250 000.”
Since this paragraph
precedes paragraph 9, dealing with the re-assembly costs, that the
latter would also be “
costs for the buyer”
seems
a
fortiori
.
[24] The minute concludes with,
“
It is agreed that all the values discussed and agreed upon
hereinbefore are so-called ‘forced-sale values’ as are
prevalent
during a liquidation process.”
[12]
[25] In my view this minute,
properly construed, reflects that the parties’ experts had
agreed the following.
First, they agreed two separate values for the
equipment, both in full working order and dismantled, which were
values that they
regarded as fair and reasonable.
[26] Second, in their assessment
of what was fair and reasonable, they took into account that the
owner of the
equipment was a company in liquidation, meaning that the
equipment had to sell, and the seller would not have had much
leverage
to hold back if what was viewed as a low offer was received.
This is what they had in mind when the referred to “
forced-sale
value”
.
[13]
[27] Third, the dismantling costs
of R200 000 served to reduce the fair and reasonable costs of
the equipment
from R1,2m to R1m; in other words, the dismantling
costs impacted directly on the bottom line of the fair and reasonable
valuation.
[28] Fourth, the same does not
however apply in respect of the removal costs and the re-assembly
costs. These
were costs that “
were for the buyer”
,
meaning it did not affect the bottom line of the estimated fair and
reasonable value of the equipment.
[14]
[29] There was cross-examination
of the defendant’s expert, Mr Kioilis, on these issues. It was
put to him
that the notional buyer would take into account that he
would have to expend R250 000 to remove the equipment, and would
have
to expend another R250 000 to re-assemble it.
[30] Mr Kioilis conceded this.
But, of course, the written evidence of the agreement reached by the
two experts
expressly deals with these issues; and clause 8 expressly
states that the agreed values for the equipment do not include
removal
costs. Clause 9 and its topic were to be dealt with the same
way as clause 8, given that both clauses dealt with topics likely
raised after the values had been agreed, given their position at the
end of the document.
[15]
[31] There is no suggestion that
the plaintiff does not regard itself as being bound by that
agreement. Although
it was put to Mr Kioilis in his cross-examination
that the plaintiff’s expert, Mr Lazarus, expresses the opinion
that the
cost of re-assembly ought to be taken into account in
arriving at the value of the equipment, Mr Kioilis disputed this. Not
only
was Mr Lazarus not called, but it was not put that he did not
consider himself bound by the express terms of the minute of their
expert meeting.
[32] Second, neither did Mr
Kioilis suggest that the agreement that he and the plaintiff’s
expert had reached,
should be amended. He had affirmed the experts’
agreement in chief. And he had explained in chief that the clauses 8
and
9 issues do not feature in the values that the two experts had
agreed, because these were buyer’s items.
[33] What he conceded was that a
buyer would take these two items into account in deciding on the
offer that that
buyer would make. But that does not detract from the
fact that the two experts had agreed on the two values, recorded in
their
joint minute. After all, why agree on those two values, only
then to qualify these later below in clauses 8 and 9, leaving aside
that the language of qualification actually goes the other way?
[34] In these circumstances the
parties’ experts agreed that the fair and reasonable value of
the equipment
as of 6 April 2010 was either R1,2m or R1m, depending
on whether the buyer would remove it. Since the likelihood was
the
latter, the value was R1m.
[35] A court is not bound by what
experts have agreed; it has to be persuaded of the intrinsic validity
of the
reasoning they advance.
[16]
In this instance one has the evidence of the defendant’s expert
who valued the equipment before litigation was on the radar
screen,
at a market value of R3,5m and a fire-sale value of R1,5m, on 12
January 2010.
[17]
He inspected the equipment at the time, and took photographs of it.
He explained that he had assumed a willing buyer and seller,
and that
the values were net of removal costs.
[36] The value that he agreed to
six years later with the plaintiff’s expert for the equipment
as of 6 April
2010, had allowed for a reduction from R1,5m to R1,2m
in situ
, fully operational.
[37] The court did not receive
evidence of comparable sales, which is the usual standard if there is
a market
for the item. But there may not be a market for this item in
the usual sense, and in any event, the witness’ expertise and
thus his qualifications to express his opinion were not attacked.
[38] In these circumstances to
question Mr Kioilis’ evidence would be the counsel of
perfection, and I am
prepared to accept it. If I am wrong in
assessing the extent of Mr Kioilis’ concession in
cross-examination concerning the
removal costs,
[18]
and if in fact he should be understood as having conceded that those
costs may be employed to reduce the fair and reasonable values
of the
equipment as agreed, whether
in situ
or dismantled, then it
seems to me the plaintiff has in any event not proved that it has
suffered any damages, for the following
reason.
[39] The actual costs to the
plaintiff of the dismantling and removal of the equipment was just
under R340 000.
Mr Kioilis said that had he known that this was
the actual cost of those items, he would have preferred to use them
and not to
have rested with estimating values for them.
[40] This amount is less than the
aggregate amount for these two items that the two experts had
estimated, being
R450 000. If the R340 000 is substituted
for the R450 000, and if Mr Kioilis must be regarded as having
conceded
that the removal costs may also be deducted so as to arrive
at the fair and reasonable value,
[19]
then the value of the equipment comes to R860 000. This amount
is still greater than the outstanding debt of R856 687.
[41] In consequence my finding is
that the value of the equipment as of 6 April 2010 was no less than
R1m, in
dismantled form; and, at best of the plaintiff, R860 000.
[20]
Since either value exceeds the balance owing to the plaintiff, the
defendant does not owe the plaintiff any money, and the claim
must be
dismissed.
Mitigation of loss
[42] Had I concluded that the
value of the equipment was less than the outstanding balance, I would
have had to
consider the third issue, being whether the plaintiff was
obliged to have accepted the defendant’s offer to borrow money
from the plaintiff to buy the equipment. I record the view I would
have taken, albeit that it is
obiter
.
[43] The defendant has the onus to
prove that the plaintiff has failed by reasonable action to mitigate
its loss.
It is accepted that the onus is difficult to
discharge.
[21]
In
my view the defendant has not discharged that onus. The defendant
suggested that the plaintiff should have accepted his offer
to enter
into a fresh financing agreement with the defendant, whereby the
outstanding balance of the debt owed by the principal
debtor would
have been financed. The plaintiff did not respond to that offer.
[44] However, the plaintiff would
have been rightly put off by the fact that the defendant was a
director and
shareholder of the very debtor that went insolvent in
the first place. The defendant said in his evidence that he was good
for
the commitment, but in my view, having regard to the immediate
history of the liquidation of the principal debtor, he was required
to have gone further. He would have had to have shown why it was
unreasonable of the plaintiff to have declined to lend him money.
I
do not suggest that that would have been an impossible row to hoe,
but it certainly, in my view, would have been difficult. In
view of
my conclusion on value, this issue does not arise.
[45] In the result I make the
following order:
The plaintiff’s claims are dismissed with costs.
WHG van der Linde
Judge, High Court
For the plaintiff: Adv. JM Kilian (083 266
9951)
Instructed by Baloyi Swart & Associates Inc
4
th
Floor, Carlton Centre Office Park
Commissioner Street, Johannesburg
Tel: 0861 298 007
Ref: Mr Swart/mdp/NED1/0448
For the defendant: Adv. I Posthumus (082 788
6065)
Instructed by Reg Joubert Attorney
1
st
Floor, Block 2, AMR Office Park
9 Concorde Road East
Bedfordview, Johannesburg
Tel: 011 450 0251
Ref: RJ/SJ
Date argued: 31 March 2016
Date judgement: 7 April 2016
[1]
Cl 19.2.1 of the ISA.
[2]
Cl 19.2.2 of the ISA. In cross-examination the
defendant conceded that the liquidator had actually voluntarily
surrendered the
equipment to the plaintiff.
[3]
Cf. Cool Ideas 1186 CC v Hubbard and Another,
2014(4) SA 474 (CC) at [28].
[4]
1995(3) SA 1 (AD).
[5]
1989(1) SA 1 (AD).
[6]
At page 15
in fin
and ff.
[7]
RH Christie & GB Bradfield, Christie’s
The Law of Contract in South Africa, 6
th
Ed, LexisNexis 2011, pp 382 to 383.
[8]
Sasfin op cit at 16 I, referring to Laws v
Rutherford,
1924 AD 261
at 264.
[9]
Exh B, p 2 para 2; p 3 para 3.
[10]
Exh B, p 3 para 5; p 4 para 7.
[11]
Exh B, p4 para 6. Clause 6 of the minute does
present some interpretation problems initially, but on reflection I
believe that
in the context the experts were being asked as to the
factors that they actually took into account in arriving at the
in
situ
value. In their answer they
explained also the factors they took into account in arriving at the
value of the equipment in dismantled
state. In other words, the
R200 000 cost of dismantling referred to at p 3 para 4 was
taken into account in arriving at
the R1m at p 3 para 3.
[12]
Exh B, p 5 para 10.
[13]
I have in mind here the evidence of Mr Kioilis.
[14]
In common parlance, when a price is given, and
other items to be included in the sale are described as being “
for
the buyer”
, it means that the
buyer must pay for them; the seller does not, i.e. the selling price
is not affected by those other items.
[15]
This was also the direct evidence of Mr
Kioilis.
[16]
BR Southwood, Essential Judicial Reasoning,
LexisNexis 2015, pages 6-8
[17]
Exh E, pp 90 ff.
[18]
It is not suggested, not could it, that Mr
Kioilis went further and also conceded that the agreed values should
be further reduced
by the costs of re-assembly at the destination
venue.
[19]
The defendant, for what his non-expert view is
worth, conceded in cross-examination that in offering R880 000
he had factored
in dismantling and removal costs. He said that
R880 000 was the fire-sale value, net of dismantling and
removal costs. He
balked at the suggestion that re-assembly costs
ought also to have been factored in.
[20]
There were references to other valuations,
specifically those obtained by the liquidators in May 2010. These
were supposedly R1,5m
in situ
,
and R360 000 at fire-sale. No evidence was led to substantiate
these; and one would have wanted to understand why the
in
situ
value ought to be juxtaposed to a
fire-sale value. After all, such expert evidence as there was
juxtaposed fire-sale value to
market value, and not to
in
situ
value.
In
situ
value was used to describe the
equipment in fully operational state, a condition on which both
sides were agreed applied to this
equipment as of 6 April 2010. If
the
in situ
value thus obtained by the liquidators were accepted as being R1,5m,
and either R450 000 or R340 000 were deducted
to provide
for dismantling and removal, as the plaintiff argued, then still the
result is greater than R856 687.
[21]
Christie op cit p 578, 579.